Understanding Uninstalled Materials Under the New Revenue Standard April 17, 2019 By: Claudia R. Wolter Typically, uninstalled materials consist of standard materials that are easily transferable to other jobs and those which are custom ordered for projects. The cost of standard materials was never to be included in job costs until installation occurred. Conversely, if custom materials met certain criteria, you could include the cost in job progress prior to ASC 606 implementation. After implementation, custom materials are treated as follows: If the contractor still retains control of the materials, they are reported on the contractor’s balance sheet as inventory. If the job owner has control of the materials, the cost of materials only (no profit) is included in job costs and revenue. How do you determine “control”? That’s a great question, but some things to consider may be: Has the owner been billed for/paid for the materials included on the AIA billing? If the contractor was fired from the job by the owner, who would take possession of the materials? If the contractor declared bankruptcy, who would take control of the materials? The following illustrates how owner controlled uninstalled materials are reported before and after implementation of the new standards: Are you ready for implementation? Answering the following questions will help determine if your organization is ready. Who within your organization is responsible to identify uninstalled materials? Who is assessing who has control of those materials? Who is determining the dollar value to assign to uninstalled materials? How are you getting the appropriate information out of your system to correctly report this information? Do you need to make changes to your system to assist in the above calculations and assessments? Do any changes need to be made in internal controls to properly account for uninstalled materials? If the contractor was fired from the job by the owner, who would take possession of the materials? If the contractor declared bankruptcy, who would take control of the materials? KatzAbosch has individuals experienced in contractor issues and trained in process improvement using lean six sigma principles that can help you through this transition. If you have questions about this information, please contact your KatzAbosch representative. Article by: Claudia R. Wolter Claudia Wolter, a Shareholder with KatzAbosch, joined the firm in 1988. She has played a major role in leading the firm into the 21st century with cutting edge initiatives, including the transition to and managing of a paperless environment. She serves as Co-Chair of the firm’s Accounting and Auditing Services Group, assists in the quality control management and oversight of the firm and is a member of the Construction and Real Estate Services Group. Most recently, Claudia served as a contributing author of “Construction Accounting,” an in-depth guide to construction financial and accounting issues for attorneys distributed by the American Bar Association. A dedicated professional, Claudia holds the prestigious distinction of Certified Construction Industry Financial Professional (CCIFP), a certification held by less than 50 professionals in Maryland and less than 1000 professionals in the United States, the designation of Certified Construction Auditor (CCA) from the National Association of Construction Auditors (NACA) and a Lean Six Sigma CPA Green Belt certification from Ohio State University ATI and Boomer Consulting, Inc.